Gold plummets as the dollar soars

Gold prices continued to decline on Monday dropping to $1,915 per ounce. If gold prices increase, resistance may be encountered near $1,950 per ounce, while if gold prices decline, support may be found near $1,900 per ounce. 

Gold prices have been predominantly directed by the dollar’s movement, as the competing gold typically loses appeal as an investment when the dollar rises. The dollar soared on Monday, with the dollar index rising above the 106 level, its highest value since November 2022. US Treasury yields also continued gaining strength on increased future rate hike expectations, with the US 10-year bond yielding above 4.53% for the first time since 2007.      

Increases in central banks’ interest rates put pressure on gold prices since assets yielding interest become a more appealing investment compared to gold as interest rates rise. FOMC members unanimously voted last week to keep interest rates unchanged at a target range of 5.25% to 5.50%. 

The Fed decided to pause rate hikes but that does not necessarily mean it has reached its rate ceiling. The Fed policy statement following the meeting left the door open for further rate hikes. Market odds of another rate hike within the year are increasing, although it is clear that the Fed’s future policy direction will be data-driven.

Inflationary pressures in the US are not easing just yet, despite the Fed’s high-interest rates. Headline inflation came in hotter than anticipated, climbing to 3.7% year-on-year in August from 3.2% in July versus 3.6% anticipated. Rising fuel costs are largely to blame for the stubbornly high inflation rates in the US. Increasing price pressures may push the Fed to continue its hawkish policy until inflation drops closer to the Fed’s 2% target.

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Written by:
Myrsini Giannouli

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